CGI Gulf Insights of the Week

  • ByCGI Gulf Insights of the Week
  • Wednesday, 01 April 2020
  • Published inApril 2020
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Country Risk Update - Saudi Arabia

Risk Indicator  - DB3c
Risk Level       - Slight
Ratings Trend - Deteriorating

The economy recorded a third consecutive quarter of expansion in Q3 2018 and the highest level since Q1 2016, but growth remains very weak. 
Longer-term growth will be driven by government reforms under its Vision 2030, which aims to reduce dependence on oil export revenues and boost the private sector.
Market Overview
EGA, Mubadala and Dubal Holding To Build $272M New Power Block
The UAE’s largest industrial company outside oil and gas, Emirates Global Aluminium (EGA), jointing owned by Mubadala and 
Dubal Holding, is building a new $272 million (AED 1 billion) power block at EGA’s Jebel Ali smelter in Dubai. Mubadala and Dubal Holding have formed a joint venture to develop a new power facility. EGA intends to buy the facility’s output for 25 years following commissioning. The new power facility is expected to reduce greenhouse gas emissions from EGA’s power generation at Jebel Ali by 10%. The emissions per tonne of aluminum produced at Jebel Ali, which includes both power generation and aluminum smelting, are expected to be reduced up to 7%. And the project is expected to reduce EGA’s NOx emissions at Jebel Ali by 58%. Meanwhile, German conglomerate Siemens is to install the UAE’s first combined cycle H-class gas turbine at the power block. The project is also the first in the global aluminum industry to use a Siemen’s H-class gas turbine, a leading technology in efficient power generation. In a joint statement, EGA announced that the new power block will replace five older, smaller and less efficient turbines at EGA Jebel Ali, which will be put on standby for use only in emergencies.EGA requires electricity for aluminum smelting and other industrial operations and has captive power plants at both Jebel Ali and Al Taweelah.
ADGM forms strategic cooperation with Hainan Provincial Government
The Abu Dhabi Global Market, ADGM, and the Hainan Provincial Government have announced the signing of a Memorandum of Understanding to further boost the economic and financial collaboration between China and the UAE via Hainan Free Trade Zone and ADGM’s international financial centre and financial free zone. The signing took place on the sidelines of the 2019 Boao Forum for Asia Annual Conference. The agreement is the first of such financial and economic cooperation between Hainan Provincial Government of the People’s Republic of China and the Middle East region. The agreement establishes a formal platform for both authorities to work closely in key aspects including, the opening up and development of the financial sector within the Hainan Free Trade Zone. It also details the development of the financial and commercial regulatory infrastructure and framework in the free trade zone, joint investment and financing initiatives between the two countries in support of the Belt and Road Initiative, legislative and dispute resolution support from ADGM, development of exchanges in the free trade zone and enable cross-listing of financial products, facilitate greater business opportunities and set-up between Hainan and the UAE. China is the biggest trade partner of the UAE, making up 14.7 percent of the country’s total foreign trade in 2017.
AMF calls for more tax income in Arab nations
The Arab Monetary Fund (AMF) called on Sunday for further economic reforms in the Arab world, including cutting energy subsidies and boosting tax revenues. Abdul Rahman Al Hamidy, director general of the Arab Monetary Fund, stressed the importance of economic diversification, saying it was among the most important reforms being implemented by Arab governments. Diversification efforts include raising more revenues from taxes as well as reducing money spent on fuel subsidies. Al Hamidy said that in 2018, Arab countries spent $240 billion on energy subsidies — the equivalent of 8 percent of the Gross Domestic Products (GDP) of Arab countries.  “Despite efforts to develop tax systems in Arab countries, the levels of tax collection still require more efforts and reform to reach those of emerging markets and other developing economies,” he said in a speech at the Arab Regional Tax Forum in Dubai. Al Hamidy said that tax revenues accounted for 13 percent of Arab countries’ non-oil GDP in 2017, compared to 17 percent in developing economies. He added that Arab countries have been seeing a significant increase in budget deficit levels since 2014, making financial discipline and sustainability one of the key challenges currently facing economies in the Arab world.
Ducab sees sales rise to Dh4.8 billion
Ducab, otherwise known as Dubai Cables, has announced that its group sales rose to Dh4.8 billion, an increase of approximately seven percent year-on-year. Its wires, cables and metals businesses all saw positive year-on-year sales growth in 2018. The newly established Ducab Aluminium Company (DAC) performed well during its first full year of operations, with total sales rising to over Dh300 million for the year. The group also made significant headway in international markets. Oman and Bahrain proved to be strong growth markets within the Gulf last year, while further afield the company said it secured significant sales contracts in Egypt, Jordan, Algeria, Australia, Hong Kong, USA, and the UK.  Ducab now operates six manufacturing facilities across four sites in the UAE, employing a workforce of over 1,600. In the recent board meeting and AGM, Ducab confirmed the appointment of Ahmad Bin Hassan Al Shaikh as the company’s new chairman.
Fresh round of taxes may hurt UAE retail market
As the UAE examines options to implement the excise tax on a broader range of products, analysts say the retail market may not be ready for yet another round of taxation. The country’s Ministry of Finance confirmed on Sunday that they are conducting a joint study with Saudi Arabia to discuss with the Kingdom’s government the “addition of new goods to the selective tax list”. They did not elaborate on when this may be rolled out. This follows the implementation of an excise tax of 100 percent on tobacco and energy drinks, and a 50 percent tax on carbonated drinks, which went in to effect in October 2017. Sales of energy drinks have since plunged. Research from Euromonitor International suggests that energy drink companies in the UAE have seen sales drop by as much as 65 percent in the 15 months after the tax was introduced. Similarly, Colin Beaton, a retail expert and managing director of consultancy Limelight, said that any additional taxes now may hurt retailers, especially as growth in consumer spending slows down. “I think it’s widely acknowledged that the retail market is soft in the UAE right now, and probably retail distributors would not look forward to additional taxes on products to make them more expensive because that would have an impact on sales,” he said. Beaton pointed out that in many western countries, sin taxes — as the excise tax has been dubbed — are most commonly implemented on alcohol, cigarettes, and petrol.
Commodity Tracker
Business Events this Week In UAE
​Gulf Information Security Expo and Conference (GISEC)
@ Dubai World Trade Centre 
Date: 01 April - 03 April 2019
Business Updates

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